Royal Dutch Shell PLC backed out of Russian arctic joint venture to develop the Meretoyakhaneftegaz oil fields with Russia-based Gazprom Neft — the oil subsidiary of Gazprom — due to challenging external environment. The two companies were to develop the resources of five fields and license blocks in the northern Yamal-Nenets region. The Yamal region is key for Russian oil and gas production as well as accounts for more than one fifth of global natural gas reserves.
The 50-50 joint venture was signed last summer at a business forum in Russia and was expected to be completed by early 2020. Total resources included in the deal were valued at 1.1 billion tons of oil (more than 8 billion barrels of oil) by Gazprom Neft.
The deal involved the sale and purchase of a 50% stake in OJSC Meretoyakhaneftegaz, which owns a number of licenses in the Meretoyakhinskoye field. Upon completion, the Tazovsky and Severo-Sambrugsky blocks coupled with two Zapadno-Yubileiny blocks in the Yamalo-Nenets autonomous region would have been transferred to the joint venture's portfolio.
Less than a year later, the deal stands cancelled in response to the slack oil demand scenario, the recent weakness in commodity prices and supply glut of crude oil since the outbreak of novel coronavirus.
The Russia-based oil producer will continue to pursue the development of the license blocks independently, in line with the previously-approved work plan. Commercial production at the first of the fields, the Tazovsky, is scheduled to begin by the end of 2020.
Initial investments in the project are estimated to be roughly 130 billion rubles (€1.6 billion) and production is expected to reach 10 million tons of oil equivalents.
Gazprom Neft stated Shell's decision to leave will not affect its cooperation with the company. Both the companies are still involved in another joint venture oil project in Russia, Salym Petroleum Development NV, which recently closed a deal to expand the development of the Salym group of fields in the Khanty-Mansi Autonomous Okrug region. A new license to geological studies, exploration and production of conventional hydrocarbon resources of the Salymsky-2 area in the Khanty-Mansi Autonomous District is part of the JV’s portfolio.
Shell’s decision to back out of the Russian Arctic deal comes at a time when some of the largest energy firms including ExxonMobil, BP plc and Chevron are paring their capital spending budget for this year as they contend with depleted commodity prices
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